Westlake Chemical Partners LP Coming to Market
By: Tim McPartland,
Westlake Chemical Corporation is spinning off their ethylene production business into a new Master Limited Partnership. Westlake Chemical Corporation is a vertically integrated manufacturer of chemicals, polymers and fabricated building products. Interestingly the new MLP will have 3 production facilities and a ethylene pipeline–a welcome fact since some of the more recent MLP’s have had just 1 or 2 production facilities (such as Northern Tier Energy which has just 1 oil refinery) and this always put revenue at risk when 1 outage at a production facility can end your revenue stream.
Ethylene is produced from the ethane portion of natural gas liquids and Westlake believes that the feedstock for their production is a lower cost feedstock than global norms in the production of ethylene which use propane and butane for feedstocks.
Like almost every MLP that has been launched there is somewhat of a incestuous relationship that will be present after the IPO–in particular Westlake Chemical Partners LP will sell their ethelyne production to Westlake Chemical Corp. on a cost plus basis under a 12 year sales agreement for 95% of their production. In this case Westlake Chemical Partners LP will receive cost plus 10 cents/lb. The claim is that this will produce more stable and predictable cash flow.
Westlake intends to make minimum quarterly distributions during the first year of 27.5 cents/unit per quarter representing a yield of 5.5% if the issue prices at the mid point ($20) of the IPO range of $19-$21/unit.
The issue will have a ticker of WLKP. We might have an interest in this issue if it prices low ($19ish).
Thanks to our longtime reader ‘Larry’ for pointing this new issue out to us.